Getting out of debt is a common New Year’s Resolution. Some people will be able to repay all of their debts through tight budgeting. But for many, repayment simply is not a realistic option and filing bankruptcy may be the best way to start the new year without debt.
Nearly half of Americans make New Year’s Resolutions to improve their financial situations. Statistically, it is probably the second most popular resolution behind physical fitness.
Making financial change can be incredibly difficult, especially for people already starting from behind. While the New Year symbolizes a fresh start, it is also a time when many annual bills renew and you really start to feel the effects of holiday spending.
Inventory your debts
Before you can even think about setting a budget, you need to know what you owe. Make a list of all accounts, their current payoff balances, and their interest rates. This will not only create a comprehensive financial picture, it also will help you ensure that no payments are missed — saving you from late fees and other penalties. If your budget allows, this list will enable you to allocate any surplus to prioritize debts with the most aggressive interest rates. Paying those off first can save you significant money over time.
Set small goals
After you know what you owe, it is helpful to set small goals. It is easy to feel defeated and abandon your resolution if it seems like no progress is being made. If you have no debts with particularly high interest rates, it can sometimes help to pay off the smaller debts first because checking off a creditor as paid-in-full can help you stay motivated. It may also help to build into your budget some small rewards for certain repayment milestones.
Break bad habits
For many people, this is the most important change to implement. Identify your “bad” financial habits and make appropriate changes. This does not mean you must give up all non-essential expenses. Just like diet for those who make physical fitness resolutions, moderation is the key to prevent burnout. For example, if you subscribe to five streaming television services, consider canceling the one you use the least. By making moderate changes to other areas of your budget as well, such as dining out or shopping, you can make a significant change without feeling so discouraged.
Consider filing bankruptcy
Now comes the unfortunate truth. For many people, no amount of financial responsibility and dedication will make repayment a realistic option. Interest rates are just too high and balances may be increase even if you make all of your payments. If this is your situation, now may be the right time to seriously consider filing bankruptcy. By discharging most types of debt, it may enable you to keep your resolution and achieve a fresh financial start otherwise impossible. If you have questions about bankruptcy or other debt relief options, contact us for a free consultation.